GCC family businesses face tough transition: Survey

Dubai - 

More than half of the GCC’s family businesses are in the midst of the transition from the second to third generation; and just around 15 per cent of those businesses are likely to survive it, according to the inaugural GCC-focused family business study conducted by Gulf Family Business Council (GFBC) and McKinsey & Co

GFBC chairman Abdulaziz Abdullah al Ghurair said, “At the council we understand that the majority of family business owners in the GCC are relatively young, between 40-60 years old, facing the critical juncture of transition of leadership from first to second or second to the third generation.

One major risk during this transition is for large family businesses to get fragmented. Preparation is needed to avoid loss of family harmony and business disruption which in turn leads to loss of economic value. With around 75 per cent of GCC private sector economy being family-owned, it is pertinent that we support the families to be equipped for the transition.”

The newly rebranded Gulf Family Business Council (GFBC) is the regional association of the Family Business Network International (FBN).
The study revealed that 44 per cent of family businesses have an employment policy in place for the next generation from the family, nonetheless only 17 per cent of businesses have an effective assessment method in place to identify roles and responsibility for the next generation.

family business

A development plan for the next generation and a clear business integration policy would ease the transition of leadership and set a reference to manage conflict. The study recommends that the ‘rules of the game’ should be clearly stated to the next generation as early as possible to allow for effective succession planning and transition of leadership.

While family businesses have made significant progress in putting corporate governance systems in place, few have been successful in completing end-to-end effective implementation. Of the businesses researched, over 66 per cent of participants reported that they have started to put the building blocks in place. However, only around 33 per cent reported that the practices are fully adopted and are working effectively.

The study also found that ensuring successful implementation requires the engagement of the broader family, not just those who are in positions of authority or involved in the business. This is required to ensure wide buy-in and commitment amongst family members.

Ahmed Youssef, partner at McKinsey & Co, said, “While all families are involved in some form of charitable giving, very few have developed organised philanthropic efforts: Only 36 per cent of the sample group had defined a clear strategy for their giving; 20 per cent had established a robust governance structure to oversee their giving; and, 16 per cent were clear about how they would evaluate the impact of their efforts.

Given the general desire of many families in the region to engage in philanthropy and give back to society, as well as the role philanthropy can play in galvanising family members around a common set of values, many families would benefit from being more systematic about their philanthropic efforts.”

Youssef added, “Looking forward, we are optimistic about the pace of change, especially given the surge in awareness among family businesses on the need to change. We are also conscious that the real test is yet to come.”  

Last April, GFBC released a legal white paper on succession planning, discussing challenges. GFBC chairman disclosed a legal initiative launched with policy makers to develop legal structures that consider family business challenges in the region, a press release said.

Later this month GFBC is running a next generation workshop developed by a leading family business professor from Insead Wendel International Centre of Family Enterprise.

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